IPOs: Qudian Moves Toward Blockbuster NY Listing

Bottom line: Qudian's IPO will get a
moderately warm reception in New York, drawing interest due to its
status as a major private fintech firm but also wariness owing to
many uncertainties in the young sector.

Qudian moves closer to IPO

Anything involving movement of money has always been slightly
problematic in China. Be it paying for things online, paying to
play computer games, or even borrowing small sums to buy something
like a smartphone, nothing has ever been easy for Chinese
consumers. That's mostly due to the creaky financial system they
inherited when the country began its march into the modern era
starting in the 1980s and '90s.

That lack of services has been a godsend for a new generation of
companies that are now making their way to market by supplying some
of the many basic financial services that consumers crave. An IPO
by one of the largest of those looks set to happen in the next 3
months, with word that microlender Qudian has made
its first private filings for a New York listing to raise up to $1
billion.

Qudian began life as Qufenqi, a lender to college students,
focusing on loans averaging around 1,000 yuan ($145) a pop to help
them buy items like computers and smartphones. That particular
sector became a bit of a hot potato about a year ago, after some
companies were discovered to be asking students for compromising
photos of themselves to be used as collateral if they failed to
repay their loans.

That scandal was an important turning point for Qudian, which
decided the college student business was too limited and
controversial and moved instead into broader consumer loans. Its
target audience was basically people who would be good candidates
for credit cards if they lived in the west. Such people often like
to borrow small sums for some of their larger daily purchases, and
don't seem to mind paying inflated interest rates for that
privilege.

All that said, let's zoom in on the latest headlines that have
Qudian moving ahead with plans for a New York IPO that could be the
largest by a Chinese Internet company
since Alibaba's (NYSE: BABA) record-breaking
offering in 2014. This particular offering won't come anywhere
close to the $25 billion that Alibaba ultimately raised, but still
could raise a sizable sum of up to $1 billion if and when it
happens. (English article)

A report on the deal says Qudian has made its first private filings
for the offering with the US securities regulator, and is aiming to
make its first public filings within the next two or three months.
It's targeting a fund-raising total of $800 million to $1
billion.

New Generation of Fintech

There's not too much more to say about this particular listing,
which could become the first major offering by this new generation
of Chinese financial technology companies. One other company,
peer-to-peer lender Yirendai (NYSE: YRD), made a
far more modest $75 million offering in late 2015, and since then
has seen its share price rise about 150 percent. That includes a 6
percent rise in the latest sessions, perhaps as investors get
excited about the imminent listing of more companies like
Qudian.

One thing to note about Qudian is the sheer size of the lending on
its platform. The company facilitated 33 billion yuan worth of
loans last year alone, and the figure is expected to more than
double to pass the 80 billion yuan mark this year, or more than $11
billion. That's quite a lot of microloans, testifying to the
market's huge potential.

As to how the IPO will do, we probably need to see some more
financials before we can say how attractive it will be. Yirendai
now trades at a relatively modest price-to-earnings (PE) ratio of
about 12, meaning investors may still be wary about this group due
to the many risks they will face in such a rapidly changing
environment. Then there's also the competition factor from other
financial technology companies, most notably P2P lending
giant Lufax, which is planning an even larger Hong
Kong IPO soon, and Ant Financial, whose IPO could
be the biggest of all from this new generation of companies.

At the end of the day, Qudian could get a slight premium if it can
beat out all of its rivals and become the first major fintech
company to market. I suspect it should get a better valuation and
more investor interest than Yirendai, which is in a more
controversial area. Still, the uncertainty factor is likely to keep
many more conservative investors on the sidelines, and I suspect
the IPO will ultimately get a moderately warm reception.